The Future of the TV Industry The new King maker

Date:   Friday , April 29, 2011

“Television, a scientific dream ever since the telephone was perfected, has at last been realized” – Indianapolis Star, April 9, 1927

The first public broadcast of video carried out in the U.S. between Washington D C and New York City started the Television and Broadcasting industry, as we know it today. As we enter into the 85th anniversary of this event, the Television of today is very different from what its inventors envisioned it to be. In many countries, analog transmission is completely replaced by digital video breaking old rules defining where and when to watch by newer ideas and business models.

A brief chronology of the evolution of the Television
1927 – First video broadcast
1941 – Black and white transmission standards adopted
1948 – First cable TV transmission
1950 – First Color TV approved by FCC
1969 – Over 500 million people watch the first TV transmission from the moon
1980 – Launch of CNN, the first news channel
1996 – HDTV standard approved by FCC. DVD launched
1998 – DVR launched
2004 – DVDs outsell VHS
2010 – Internet connected TV’s emerge in main stream

A similar look at the history of the Internet reveals interesting details.

“We set up a telephone connection between us and the guys at SRI...
We typed the L and we asked on the phone,
Do you see the L?
Yes, we see the L” came the response – Leonard Klienrock, Oct 29, 1969 (The first packets sent on APRANET which later became the Internet between UCLA and Stanford Research Institute)

Though the first experiment of connecting two universities resulted in a computer crash by the time they hit the ‘G’ in LOGIN, the revolution had begun. With the efforts of researchers and scientists in various educational institutions and organizations such as the Bell Labs, the Internet evolved as a public communication network. Today’s Internet is unrecognizable from the ARPANET days.

A brief chronology of the evolution of the Internet
1969 – First message exchanged on APRANET
1974 – TCP/IP standard established. APRANET becomes the Internet
1986 – NSF funds 56Kbps backbone building for the Internet
1993 – The Mosaic browser is built
1999 – The Broadband and Internet bubble!
2003 – Video Streaming starts on the Internet
2006 – YouTube streams 100 million videos a day
2010 – Broadcast quality TV streaming starts on the Internet

The digital revolution that started in the 90s continues to grow at unprecedented speeds over the last few years. Post 2004 saw many technology companies start to change the nature of the TV production, distribution and consumption. Apple introduced the iTunes video store and the video iPod, YouTube, an online video startup grew exponentially under Google, the studios built Hulu – to bring premium content to the Internet, and Netflix progressed from DVD rentals to Internet Streaming.

So what do we see in the future?
There are three parts to the TV industry – the content creator, device makers and the distributor. Each of these silos is traditionally dominated by large media houses, consumer electronics manufacturers and network operators respectively.

Content Creators
For all the changes and improvement in technology something has remained the same– Content continues to the King. New technologies have completely altered the economics of TV production. No longer is the content creation limited to wealthy studios and filmmakers. Any one can create compelling content armed with cheap cameras and editing tools and use YouTube or one of the Internet video portals for distribution to consumers. The cost of producing a good show is a fraction of what it used to be a decade ago. However, the cost of distribution on “traditional” channels continues to remain high and the process complex. This has resulted in many independent filmmakers amongst others to create content exclusively for distribution on the Internet. The marketing of such content is considerably different and cheaper on the Internet compared to the traditional distribution channels. Even though there are just a few such successes to show today, this trend is expected to continue. Next new networks like Rocketboom are stirring examples of this new trend.

Consumer Electronics

Until recently, the device makers have had limited influence on the business of Television. The networks directly controlled the consumer experience. Consumer would watch the show only at the time of broadcast that helped create and fuel a large advertisement industry around this experience. The advent of DVRs changed this. Though the DVRs have changed the user experience the economics of TV advertising continue to remain strong.

However for the first time since its invention, the Television has serious competition from different devices like the laptops, mobile phones and most recently the iPad. These devices offer a completely different and more interactive user experience compared to the TV. The younger generation usually watches more content on these devices compared to the living room TV. More significantly this has altered the content licensing models. Today, content is licensed separately for distribution for different devices.

The Television is also evolving with improvements in display sizes and technologies and becoming “smart” with the ability to directly connect to the Internet. It still remains the default screen for viewing in the living room. Various other devices like the ones from Google, Verismo, Roku, Apple, Slingmedia act as a bridge connecting the legacy Television to the Internet bringing interesting user experiences. They bring new opportunities and business models for the content creator to exploit.

The Content distributor
The maximum disruption in the TV industry is witnessed in the distribution methods. Over-the-air broadcasts were replaced by cable and satellite networks in the 90s. Ever since high-speed broadband became near ubiquitous, the Internet has emerged as a competing distribution system. The balance for the control of the TV industry is slowly shifting from the traditional players to newer technology companies. The openness of the Internet has enabled creation of newer user experiences and opportunities for the content creators to reach consumers directly. This has the potential to completely disintegrate the current programming supply chain. The popularity of the content will soon be determined by the distributor.

The cable and satellite networks play a huge role in the economics of the distribution of popular broadcast content today. They pay the content creators upfront for distribution rights on their platform. The content creators will not cannibalize this revenue stream until such time a similar or better revenue model is discovered for Internet distribution. Netflix and Hulu Plus are the best examples of the new world, wherein Netflix and Hulu pay-up the content creators similar to their traditional distributors. In most other cases the content creator’s participation on the Internet is limited to creating “free” add-on content like web-only scenes or other short form supplementary content.

The cable and satellite networks on their part are fiercely defending their turf by pushing a central authentication system allowing consumers to access the content on the Internet as well but only as long as the consumer is a cable or satellite subscriber!

In summary, there is significant disruption in the entire supply chain. The consumer gets more choices and freedom. The content creators have more distribution opportunities and newer content creators are coming up. The content distributor is becoming more and more important and powerful in the entire eco-system.
The future of Television is bright and exciting. The content may still be king but the distributor is firmly establishing as the new “king maker”.

The author is CTO, Verismo Networks